Deducting Business-Related Entertainment Expenses
The 2017 Tax Cuts and Jobs Act (TCJA) eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. Prior to the change in the law, a business could deduct up to 50 percent of entertainment expenses directly related to the active conduct of a trade or business or, if incurred immediately before or after a bona fide business discussion, associated with the active conduct of a trade or business.
On October 3, 2018, the Internal Revenue Service issued Notice 2018-76 which provides guidance on the business expense deduction for meals and entertainment in light of the changes in the law.
The Notice provides that taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact. The Notice further provides that food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event.
The Department of the Treasury and the IRS expect to publish proposed regulations clarifying when business meal expenses are deductible and what constitutes entertainment. Until the proposed regulations are effective, taxpayers can rely on guidance in Notice 2018-76.
The Treasury Department and the IRS intend to issue separate guidance addressing the treatment of expenses for food and beverages furnished primarily to employees on the employer’s business premises.
If you have any questions regarding deducting business expenses for meals and entertainment or other tax related concerns, contact Esther Streete at 410-266-9909.